23 Jun: Canada gets its TAM

Canada sports-betting bill, Everi Q2 pre-announcement, Macau GGR, Codere Online SPAC, Gaming Americas, Macquarie and Jefferies conference notes +More

Jun 23, 2021

Good morning. Or as Matt Davey, CEO at the Tekkorp SPAC, said during a session from the Gaming Americas event as the news broke that Canada’s Senate had passed the bill authorizing single-game betting, “welcome to the 21st Century.” The developments have been digested this morning by the analysts who tip Score Media and Gaming as a potential big winner. With a sports-betting bill getting the Governor’s signature in Louisiana and fixed-odds horse racing getting the nod in New Jersey, it’s already been a busy week in terms of legislation. And as a sign of things to come on earnings, Everi has issued a Q221 pre-announcement that reminds us that things are going to get very busy again, very soon on the quarterlies front. Buckle up.

If you have been forwarded this email and would like to subscribe, click here:

Canada sports-betting bill

Northern exposure: The news that Bill C-218 had passed the Senate with room to spare and will be signed into law within days means Canada’s sports betting is likely to have a similar effect on the Canadian market as the ending of PASPA had in the US three years ago. The biggest winner, according to the analysts at Credit Suisse, will be Toronto-based Score Media and Gaming which the CS team predict will be able to grab 20% of the OSB market. They point out that Ontario, with a population of 14.6m, is effectively the fifth largest single market in North America and is larger than any US state regulated to date (Pennsylvania has circa 13m, Illinois 12.8m). Overall CS suggests the Canadian opportunity could be worth up to $5bn between OSB and iGaming. For its part, Score said the news was “momentous.”

Falling in line: Ontario is expected to be up-and-running by the start of the NFL season, with British Columbia and Alberta launching either late 2021 or early 2022, meaning around 64% of the population will have access to OSB and igaming by the end of next year. Truist Securities suggest unsurprisingly the market will be competitive; DraftKings has previously guided for 10/20% market share while Macquarie pointed out that Flutter and PointsBet have also spoken about Canada expansion. They also throw the name of Penn National, Caesars and MGM (via BetMGM) into the mix. The team noted the attractiveness of the sports culture in Canada which has six NHL teams, one NBA team, one MLB team, and its own football league. Truist issued one word of warning, though: “Of course, risks around irrational spending in Ontario may be a more immediate concern given the competitive rush we expect upon launch.”

Everi Holdings Q2 pre-announcement

The top line

Q2 revenues of $167-$172m, ahead of Street forecasts of $134m-$139m and adjusted EBITDA of $87m-$91m (vs forecasted $74-$73m). Free cashflow to hit $32m-36m in Q2 vs. Street expectations of $24m-$25m.

Balance sheet $361m positive at end of May vs. $335m at March end. Net cash position $226m at end of May vs. $183m at March end.

Recall, Q121 represented record revenues of $139m, an all-time high net income of $21m, and operating income of $40.2m (vs. $25.9m in Q119), EBITDA of $75m and free cashflow of $44m.

Premium placement: CEO Michael Rumbolz said slots products continued to see growth in installed units. “In particular the consistent increases in placements of our higher-earning premium units that are helping to drive higher daily win per unit.” He expected Q2 ship share to overtake the 943 units shipped in Q1. Truist noted Everi has likely seen a boost from sales from the upcoming Resorts World opening in Las Vegas. The earnings beat of 22% bodes well for fellow suppliers IGT, Scientific Games and AGS and would suggest earnings beats of 19%, 5% and 18% respectively, suggested Macquarie.

Everi cloud: The company said it will use the momentum it has built up to “focus on reducing leverage”. Analysts at Truist and Macquarie echoed the point, saying Everi would look to “opportunistically refinance” before any potential rise in interest rates. The group has a $35m revolving credit facility due 2022 and a $820m loan facility due 2024. Refinancing would enable it to prepay in full its $125m incremental loan due 2024 and redeem the $285.4m of unsecured notes due 2025, which could ultimately yield $10m-15M in annual interest savings.

Macau GGR

The acid test: Daily GGR dropped to MOP167m a day, the lowest daily GGR since September 2020 when the number of players was affected by the tourist visa manual-approval process of seven to 10 days, according to analysts at Jefferies. VIP volumes 40% lower MoM with a 2.8% win rate; mass-market players were down 32%-35% MoM. Travel and quarantine restrictions are set to ease with Guangdong reporting single-digit local infections since 7 June and no cases on 15 and 19 June. Hong Kong enjoyed zero local cases since 7 June 2021 and is set to discuss reopening the border to Macau, analysts at Jefferies noted. “We expect this to be a phased opening focusing on extending pre-arrival negative nucleic acid test (currently 24 hours to 7 days) and shortening the centralized isolation medical observation” from the current 14 days to seven and then removing it. The border would also only reopen to fully vaccinated travellers.

Codere Online SPAC

Oh ‘dere: Codere Online has become the latest gaming entity to seek a public listing in the US via a de-SPAC with merger partner DD3 Acquisition Corp II. Codere will retain a majority-ownership of the Latin America-facing Codere Online. Alongside the $125m that DD3 brings to the table, there is PIPE investment of $67m from Baron Funds, LarrainVial and DD3 Capital Partners. The presentation accompanying the news talked about the omni-channel opportunity; parent group Codere has over 10,000 venues throughout Latin America, Spain and Italy. Codere Online has a “strong” presence in Spain, Mexico, Colombia and Panama and will be launching soon in the city of Buenos Aires.

Gaming Americas conference

On cue: Driving home the point about SPACs as a vehicle for non-US-facing companies to receive a multiple boost, Lloyd Danzig, CEO of Sharp Alpha, spoke on an M&A panel yesterday afternoon about how this was one more reason for why there will be more special purpose acquisition deals along the track. “You have all these non-US companies… within established gaming markets that want to access US capital markets at a US digital gaming multiple,” he said. Danzig also made a point about the rush of sports-betting and gaming partnerships between teams and operators.

“There is a version of the future in which some of these deals are detrimental to the gameday experience,” said Danzig. “We have seen this in other markets where the inundation of gambling-related advertising ended up leading to consumer protection concerns and friction between regulators and operators. Now in places like Italy we are seeing marketing bans and sports teams walking away from gambling deals.”

Conference quote

“Operators make a lot of money on the ATM fees at the property. So there is a concern they will lose revenue on that side. So rather than extract value from fees, they should focus on a much better seamless experience from which will come more revenue.”
Andrew Crowe, SVP of business development, Sightline Payments on the move to cashless gaming floors

Macquarie Technology Summit

Future imperfect: Talking during MTS about the future profitability of the US, Lee Fenton, CEO at Gamesys, suggested online gaming regulation was central. “One key lesson for the US from Europe is that iGaming is absolutely critical for driving the profitability of your business and it is so much more predictable and it allows you to continue to invest, enhancing your product and your service levels. That is super key for all of us.”

Rarified air: While the panel noted the trend towards vertical integration, Dermot Smurfit said this was a path that only the well-capitalized businesses would be able to follow. It will leave plenty of room, then, for suppliers to seek partnerships with smaller commercial operators who lack the financial/technical resources, as well as tribal operators who to this point have shown little interest in developing their own tech solutions.

Jefferies Virtual Conference , Day 1

A bull case: Regional and digital gaming are the most bullish segments when it comes to growth and future prospects, analysts at Jefferies concluded after Day 1 of its Virtual Nantucket Conference. “The bullishness is particularly prominent in regional gaming, where business levels remain solid vs. 1Q21,” Jefferies commented. Regulatory changes such as the removal of the bet limit in Colorado and the legalisation of horseracing machines in Kentucky will also help. Las Vegas business for H221 “remains somewhat dependent on the convention calendar recovery”, which would boost cash flow of groups like Golden Entertainment and Boyd Gaming. Labour shortages still need to be worked through and inflation could become an issue as the recovery gathers pace as it would bring “a measure of uncertainty” for the stocks in the sector, said Jefferies.

Newslines

Louisiana purchase: Governor John Bel Edwards signed the bill that makes sports-betting legal in Louisiana on Tuesday, meaning launch date should be hit in the fall. The measure was approved by voters at last November;’s election.

Reining it in: New Jersey has added fixed odds wagering on horse racing to its menu of products. The bill passed unanimously and now heads to the Governor's office for the official signature.

Trade deal: The company behind plans to launch the first legal US sports-betting exchange Sporttrade announced a $36m funding round led by Jump Capital, Impression Ventures, Hudson River trading and Tower research Ventures. Jim Murren is also on the ticket alongside Nasdaq Ventures win a convertible debt deal.

Did you see the Bears game? Rush Street has signed an exclusive multi-year online and offline betting and gaming partnership with the Chicago Bears with BetRivers becoming the official sportsbook of the Bears and Rivers Casino now the official casino partner. As part of the deal, BetRivers will receive prominent in-stadium signage as well as digital, social and print assets and it will be the title partner for the Bears F2P games on its official app.

A cracker: Jacobs Entertainment has announced the opening of a new Superbook Sportsbook at its Lodge Casino in Colorado this coming Friday. Superbook also operates the sportsbook at the Westgate Las Vegas Resort and Casino. Late last year, SuperBook Sports launched its mobile app in the state. The Lodge sportsbook is the first SuperBook outside of Nevada.

Russell 3000: Sports streaming and betting platform FuboTV is set to join the broad-market Russell 3000 Index. The move will be effective after the US market opens on June 28. The companies in the index are ranked according to their market valuations.

In play: Accies Acquisition Corp has completed its de-SPAC with Playstudios that sees the new combination floated on Nasdaq. With approximately $220 million in cash on the balance sheet, Playstudios said it is poised to “accelerate the company’s growth initiatives” including potential M&A.

What we’re reading

From brand to bland: How PokerStars lost its ‘thing’.

What we’re writing

Lancing that boil: Hindenburg goes public on SBTech.

Tweet of the week

Live and direct: LiveScore is the beneficiary of the best advertising courtesy of the huddled Danish team looking to confirm that they had qualified to the knockout stages: